Jurisdiction - Singapore
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Singapore – Reflecting Commercial Reality In Enforcing Personal Guarantees.

9 December, 2014



The rise and fall of the shipping industry in recent years served as the backdrop to the recent High Court decision in Bank of China Limited (Singapore Branch) v Huang Ziqiang and another [2014] SGHC 245. As security for a term loan facility granted by the plaintiff bank (“the Bank”) to Yuan Sheng Shipping (Singapore) Pte Ltd (“the Borrower”) to partially finance the purchase of a bulk carrier (“the Vessel”), Mr Huang Ziqiang (“the Guarantor”) had executed a personal guarantee (“the Guarantee”) in favour of the Bank. Subsequently, when sued by the Bank for repayment of the principal sum and interest, the Guarantor asserted that the Bank had made fraudulent misrepresentations to induce him to execute the Guarantee, including representations that the Bank “would not call on and enforce the Guarantee” and that the “Guarantee was merely a formality required by the Bank”. A critical consideration for the High Court was “the commercial reality of the situation” and whether it was conceivable that the Bank would have made the alleged false representations.


In 2008, the Bank granted a term loan facility of USD 90.65m (“the 2008 Loan Facility”) to the Borrower to partially finance the purchase of the Vessel. The 2008 Loan Facility was secured by a first statutory mortgage on the Vessel, an assignment of charter hire and insurance proceeds and a corporate guarantee from Pacific King Shipping Holding Pte Ltd (“Pacific King”). The Guarantor was at all material times the majority shareholder and a director of Pacific King.

Shortly after the drawdown of the full amount of the 2008 Loan Facility, the charterer of the Vessel defaulted on the charter. Negotiations ensued between Pacific King (on behalf of the Borrower) and the Bank to revise the 2008 Loan Facility.

In 2009, the Bank revised the 2008 Loan Facility downwards to USD 78.15m. The Borrower’s instalment payments were also revised. As a condition to the revision of the 2008 Loan Facility, the Guarantor was required to provide the Guarantee to the Bank as additional security for the Borrower’s indebtedness. The Guarantee was dated 13 January 2009.


In 2011, the Bank further revised the loan facility limit to USD 74.67m, which was secured by, among others, Pacific King’s corporate guarantee. The Guarantor also signed an undertaking confirming that the Guarantee would apply to this revised loan facility (“the Undertaking”).

Subsequently, the Borrower defaulted on the loan repayments and the Bank commenced proceedings in the High Court to seek repayment of the outstanding principal sum of USD 66,838,374.08 and loan interests from the Borrower. The Guarantor did not dispute the Borrower’s indebtedness to the Bank but argued that the Guarantee and the Undertaking were unenforceable as they were executed due to the Bank’s fraudulent misrepresentations, which also gave rise to the defence of promissory estoppel. Based on the alleged misrepresentations, the Guarantor counterclaimed for a rescission of the Guarantee.

Summary Of Decision

The High Court held that the Guarantee and the Undertaking were enforceable against the Guarantor, as the Guarantor had failed to establish a case for fraud. A key reason was that one of the Guarantor’s witnesses had testified that the Bank had allegedly represented that the Guarantee would not be enforced under normal circumstances. The High Court noted that such a statement was too vague and the Guarantor could not prove that the Bank made it, knowing that it was false.

The High Court further held that the Undertaking was not merely a letter of comfort, but was a binding document in a commercial transaction. It also dismissed the defence of promissory estoppel because the requirement of a legal relationship arising between the Bank and the Guarantor was not met. Based on the Guarantor’s own claim of fraudulent misrepresentations by the Bank, no such relationship could arise.

Commercial Reality And The “Motive” Argument

An important part of the Guarantor’s defence was that he would not have executed the Guarantee if the Bank had not made the alleged false representations, as he would be putting his own assets at risk to secure Pacific King’s survival in difficult times. Instead, the Bank had a motive to make the representations and restructure the repayment schedule as it wanted to avert a significant loss on the 2008 Loan Facility.

The High Court, however, rejected the Guarantor’s “motive” argument, because the commercial reality was that “there could have been no logical or commercial reason for the Bank to accept a guarantee that was not worth the paper it was written on”. The purpose of the Guarantee was “to serve as additional security to make good the shortfall in the value of [the Vessel]”. Moreover, the High Court accepted the Bank’s arguments that the restructuring was mutually beneficial to both parties and that the Guarantor was willing to give the Guarantee as he was confident that Pacific King would be able to ride out the storm.



As many cases have shown in the past, the giving of a personal guarantee is fraught with legal issues and complications. The High Court’s decision illustrates that alluding to possible motives of a bank or financial institution in accepting security, without concrete evidence, would not be sufficient to resist enforcement of the security.




For further information, please contact:


Kaylee Kwok, Partner, RHTLaw Taylor Wessing
[email protected]


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